The Nexus between Corporate Performance and State Ownership in Vietnam: Evidence of State Ownership’s Inverted U-Shape and Provincial Business Environment Influences

Abstract

The level of state ownership in corporations is still a controversial topic because of its duality: on the one hand, it brings resource advantages, and on the other hand, it causes agency problems. Thus, our study aims to investigate the relationship between state ownership and corporate performance within the Vietnamese context, unraveling the impacts of state ownership’s non-linear and provincial business environment. Analyzing financial data spanning over a decade from 359 listed corporations on the Vietnamese stock markets (2010–2021), our empirical findings derived through the General Method of Moments (GMM) reveal that state ownership emerges as a potent “strategic asset” with a positive influence on corporate performance. However, a critical point is identified when state ownership surpasses the threshold of 32 percent and a decline in corporate performance ensues—a confirmation of an inverted U-shaped impact. These results substantiate the necessity of the equitization process and underscore the imperative of judiciously managing state ownership in Vietnam. Notably, our study unveils a more critical dimension: the enhanced provincial business environment bolsters corporate performance and amplifies the positive impact of state ownership. Thus, a strategic dual approach is suggested to improve corporate performance: improving the business environment and recalibrating the percentage of state shareholders. Our study serves as empirical evidence, referencing Vietnam and other transitional economies, toward mannerly policy decision-making related to state ownership and the business environment to boost corporate performance.